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Forecasting in a Windstorm Tuesday, February 3 rd, 2009 2:00 3:00 PM EDT Hospitality Sales and Marketing Association International (HSMAI) 2 hsmai.org
Overview of Format and Topic Moderator Barb Taylor Carpender, CMM, CHSC Managing Director, HSMAI University 3 hsmai.org
HSMAI University Alliance Partner 4 hsmai.org
HSMAI University Alliance Partner 5 hsmai.org
POLL QUESTION #1 How many people are participating in this webinar at your location today? 1 2 3 4 5 6 7 8 or more 6 hsmai.org
Today s s Presenters Jan D. Freitag Vice President, Global Development SMITH TRAVEL RESEARCH jan@smithtravelresearch.com www.smithtravelresearch.com R. Mark Woodworth President PKF International mark.woodworth@pkfc.com www.pkfc.com 7 hsmai.org
US LODGING INDUSTRY OVERVIEW Jan D. Freitag Vice President 8 hsmai.org
Thoughts about ALIS Fear and Loathing in San Diego transient demand, (is) a downward death spiral JP Morgan JP Morgan miserable 2009 management guidance RevPAR still a falling knife Baird Deutsche Bank 9
160 Total United States Estimated Revenue and Profitability Years 1997-2007 140 Revenue Income 133.4 139.4 122.7 120 102.9 112.1 103.5 102.6 105.3 113.7 100 85.6 93.1 80 60 40 20 17.0 20.9 22.1 22.5 16.2 14.2 12.8 16.7 22.6 26.6 28.0 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Continually Profitable 2009 Smith Travel Research, Inc. 10
Total US Room Rates Actual vs Inflation Adjusted 2000-2007 110 100 If year 2000 ADR had increased by CPI each year 99.77 97.31 103.91 102.76 96.65 90 85.22 85.22 Nominal ADR Yr 2000, Grown by CPI 83.99 87.64 82.75 89.03 82.86 91.06 86.24 93.48 90.90 80 2000 2001 2002 2003 2004 2005 2006 2007 It took 6 years to recover from Rate Reductions in 2001 2009 Smith Travel Research, Inc. 11
12 Total US Overview
Total United States Room Supply/Demand Percent Change Twelve Month Moving Average 1989 to December 2008 6 4 2 0-2 -4 Supply % Change Demand % Change -6 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Building Into The Downturn 2009 Smith Travel Research, Inc. 13
Total United States Room Demand/Occ/ADR Percent Change Twelve Month Moving Average 1989 to December 2008 10 8 6 4 2 0-2 -4-6 -8 ADR % Chg Demand % Change Occ % Chg 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2.4% -1.6% -4.2% Focus on Demand Not Occupancy 2009 Smith Travel Research, Inc. 14
Total United States Hotel Rooms Sold vs. ADR Change Quarterly Change 1988 to Q4 2008 10 8 6 4 2 0-2 -4-6 Demand % Chg ADR % CHG -8 1988q1 1991q1 1994q1 1997q1 2000q1 2003q1 2006q1 10 8 6 4 2 0-2 -4-6 -8 Yield Management Amplifies The Pain 2009 Smith Travel Research, Inc. 15
Total United States Key Performance Indicators Percent Change December YTD 10 5 2007 2008 6.2 5.8 2.7 2.4 0 1.3 0.9-0.4-1.6-1.9-5 Supply Demand Occupancy ADR RevPAR -4.2 YE Results Mask The Deterioration of Fundamentals 2009 Smith Travel Research, Inc. 16
Total United States Key Performance Indicators Percent Change 2008 First 8 Months vs. Last 4 Months 10 5 0 2.4 Jan-Aug Sept-Dec 3.2-0.3 3.9-0.8 1.2-2.6-5 -4.6-10 -7.5-8.2 Supply Demand Occupancy ADR RevPAR A Tale of 2 Seasons 2009 Smith Travel Research, Inc. 17
Total United States Demand Percent Change Day of Week 2008 First 8 Months vs. Last 4 Months 4 2 0-2 -4-6 -8-10 -12-14 1.8-12.2-1.9 2.4-0.2-3.5-0.8 Jan-Aug Sept-Dec Sun Mon Tue Wed Thu Fri Sat -4.1-1.6-5.9-1.2 Sunday / Thursday / Saturday Are Slowing -3.8 2.1-10.0 2009 Smith Travel Research, Inc. 18
Total United States ADR Percent Change Day of Week 2008 First 8 Months vs. Last 4 Months 5 3.7 4.3 4.4 4.1 4.1 3.3 2.6 0-0.1 0.7 0.0 0.3-0.3 Jan-Aug Sept-Dec -1.3-1.5-5 Sun Mon Tue Wed Thu Fri Sat Weekend Rates Are Deteriorating 2009 Smith Travel Research, Inc. 19
20 Chain Scales
Total United States Demand Percent Change Chain Scale 2008 First 8 Months vs. Last 4 Months 5 3.6 0-5 -10-0.3-4.6 1.0-6.0 1.6-3.6 Total US Luxury Upper Upscale -0.4 Jan-Aug Sept-Dec -6.2-9.3 1.9-2.2-1.6-4.7 Upscale Mid W Mid W/O Economy High End Demand is Falling 2009 Smith Travel Research, Inc. 21
Total United States ADR Percent Change Chain Scale 2008 First 8 Months vs. Last 4 Months 5 3.8 4.0 4.2 2.0 2.6 2.3 1.7 1.7 0.9 0-0.6-1.5-1.3-0.7-5 -4.1 Total US Luxury Upper Upscale Jan-Aug Sept-Dec Upscale Mid W Mid W/O Economy Midscale Hotels Maintain Rate 2009 Smith Travel Research, Inc. 22
Increasing Occupancy and ADR Chain Scales Percent of Properties Year End 2007 3 rd & 4 th Quarters 2008 60 50 40 51.7 48.6 42.1 38.4 2007 YE Q3 2008 Q4 2008 40.5 35.5 30 20 10 0 18.6 2.8 Luxury 22.7 23.7 7.1 Upper Upscale 10 20.6 21.7 11.9 12.4 19.1 Upscale Mid With Mid W/O Economy 14 Only 7 Luxury Hotels Increased ADR & OCC 2009 Smith Travel Research, Inc. 23
Declining Occupancy and ADR Chain Scales Percent of Properties Year End 2007 3 rd & 4 th Quarters 2008 75 50 60 53.8 42.5 2007 YE Q3 2008 Q4 2008 25 28.5 16.4 17.2 23.3 34.7 20.6 33.1 24.9 31.7 0 4.1 Luxury 2.2 Upper Upscale 10.8 8.1 6.2 5.5 Upscale Mid With Mid W/O Economy Most Properties See Falling ADR & OCC 2009 Smith Travel Research, Inc. 24
25 Major Markets
Key 10 Global Markets ADR Percent Change (Local Currency) December 2008 YTD Chicago, IL New York, NY Phoenix, AZ 1.6 2.3 3.3 San Diego, CA 2.0 San Francisco/San Mateo, CA 5.4 Top 25 US Markets All Other US Markets 2.1 2.8 Berlin Hong Kong SAR Dubai 6.6 6.4 7.4 London 4.4 Rio de Janeiro -12.1-15 -10-5 0 5 10 Sluggish Global Rate Growth 2009 Smith Travel Research, Inc. 26
Key 10 Global Markets Occupancy Percent Change December 2008 YTD Chicago, IL New York, NY Phoenix, AZ -11.2-6.0-1.8 San Diego, CA -4.7 San Francisco/San Mateo, CA -0.1 Top 25 US Markets All Other US Markets -4.4-3.8 Berlin -2.1 Hong Kong SAR -3.7 Dubai -5.2 London -1.6 Rio de Janeiro 3.8-12 -10-8 -6-4 -2 0 2 4 6 Global OCC Declines 2009 Smith Travel Research, Inc. 27
Total US vs. Resort Locations Demand Percent Change Twelve Month Moving Average 2005 to December 2008 5 4 3 2 1 0-1 -2-3 -4-5 2005 2006 2007 2008 Total US Demand Resort Demand Resort Demand Drops Faster / More Steeply 2009 Smith Travel Research, Inc. 28
U.S. Lodging Industry Projections As of January 2009 29
Total US Industry Consecutive Quarterly Declines Key Indicators 1990/1991 2001/2002 Current ------------- --------------- --------- Room Demand 3 5 4 Occupancy 7 6 5 Average Daily Rate 0 5 1 RevPAR 5 5 2 Room Revenue 2 5 1 30 2009 Smith Travel Research, Inc.
Total United States Active Development Pipeline Thousand of Rooms Change From Last Year Phase December 2008 December 2007 % Change In Construction 185 212-12.6% Final Planning 89 84 5.4% Planning 339 320 6.0% Active Pipeline 613 616-0.4% Pre-Planning 140 124 12.4% Total 756 740 1.7% Source: STR / TWR / Dodge Construction Pipeline 31 Under Construction Pipeline Is Shrinking
Total United States Abandoned Rooms Year-over-year percent change 90% 70% 70% 75% 56% 50% 30% 31% 34% 10% 16% 17% Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Source: STR / TWR / Dodge Construction Pipeline 32 Rate of Abandonment is Increasing
5 4 Total United States Supply/Demand Percent Change 2003 2010P 4.0 Supply % Chg Demand % Chg 3 2 1 0-1 1.0 1.3 0.4-0.1 2.8 0.2 0.5 1.3 1.0 2.7 2.4 1.2 1.9 1.4 1.5-2 -1.6-1.6-3 2003 2004 2005 2006 2007 2008 2009P 2010P 20 Yr Average 2009 Smith Travel Research, Inc. 33
Total United States Occupancy Percent Change 2003 2010P 5 4 3 2 3.6 2.9 1 0-1 0.3 20 Year Average: -0.4% 0.4-0.2 0.2-2 -3-4 -5-4.2-4.0 2003 2004 2005 2006 2007 2008 2009P 2010P 2009 Smith Travel Research, Inc. 34
Total United States Occupancy Percent 2003 2010P 70 63.1 63.3 63.1 60 59.2 61.4 60.4 58 58.1 50 2003 2004 2005 2006 2007 2008 2009P 2010P 2009 Smith Travel Research, Inc. 35
Total United States ADR Percent Change 2003 2010P 7 5.5 7.5 6.2 5 4.2 3 20 Year Average: 3.5% 2.4 2.4 1 0.2-1 -3-2.0 2003 2004 2005 2006 2007 2008 2009P 2010P 2009 Smith Travel Research, Inc. 36
Total United States RevPAR Percent Change 2003 2010P 10 5 0 7.9 20 Year Average: 3.4% 0.5 8.5 7.8 5.7 2.4-1.9-5 -5.9-10 2003 2004 2005 2006 2007 2008 2009P 2010P 2009 Smith Travel Research, Inc. 37
110 Total US Room Rates Actual vs Inflation Adjusted 2000-2007 100 If year 2000 ADR had increased by CPI each year 99.77 97.31 103.91 102.76 96.65 90 85.22 85.22 Nominal ADR Yr 2000, Grown by CPI 83.99 87.64 82.75 89.03 82.86 91.06 86.24 93.48 90.90 80 2000 2001 2002 2003 2004 2005 2006 2007 It took 6 years to recover from Rate Reductions in 2001 38
Turning Points When will the Lodging Industry Grow Again? R. Mark Woodworth PKF Hospitality Research Atlanta, Georgia www.pkfc.com 39
Turning Points When will the lodging industry grow again? What is a Turning Point? That point at which period to period change begins a sustained directional shift. Key Questions: When will they occur? What will we see along the way? Are we about to chart new territory, or have we seen this before? Word for the day: Protracted 40
Outline Turning Points: When will the lodging industry grow again? The Economy Profit Outlook Asset Values Takeaways 41
The Economy Profit Outlook Asset Values Takeaways 42
Total Payroll Employment in a Long Contraction Source: Moody's Economy.com 43
Remember the Jobless Recovery? Long Run Employment Levels 16 Qtrs 15 Qtrs Forecast 10 Qtrs 9 Qtrs Beginning / End of Contraction Period Turning Point Source: Moody's Economy.com 44
Monthly Unemployment Rate Forecast Local Maxima Source: Moody's Economy.com 45
Monthly Inflation Rate This hasn t happened since 1954 Oil explains much of the volatility Forecast Local Maxima / Minima Source: Moody's Economy.com 46
47 Have We Seen This Before?
Current Recession Much Longer than Last Two More than Half Is Behind Us: Q209 Source: PKF Hospitality Research, Smith Travel Research, Dr. Edward Leamer, UCLA 48
Turning Points: Distance from Beginning of Official NBER Recession (Quarters) Source: Moody's Economy.com 49
Recovery Timelines Mixed Across Markets Quarters Until Employment Levels Turn Positive 4Q08 Growth Positive 1 Quarter 2 Quarters 3 Quarters > 4 Quarters Source: Moody's Economy.com 50
How Much Worse Will It Be? Many Markets Will Realize Record Declines Single Worst Quarter Employment Forecast vs. History < -1% -1% - 0% 0% - 1% 1% - 2% > 2% Source: Moody's Economy.com 51
I guess he was right! 52
Loan Delinquencies Increase Pain Will Escalate into Late 2010 Source: PKF Hospitality Research, Moody s Economy.com 53
Hotel CMBS Delinquency Rate 1998 2008 2008 Source: Trepp, LLC 54
The Economy Profit Outlook Asset Values Takeaways 55
Protracted Disconnect Between Property Cycle and Business Cycle Forecast Source: PKF Hospitality Research, Smith Travel Research Cycle Disconnect 56
Protracted Declines Lead to Record Low Occupancy in 2009 Forecast Source: PKF Hospitality Research, Smith Travel Research 57
Weak Occupancy Postpones ADR Growth Until 2Q 2010 Forecast Source: PKF Hospitality Research, Smith Travel Research 58
High ADR Changes Fuel NOI Swings Forecast THIS IS A MODERN RECORD Source: PKF Hospitality Research, Smith Travel Research 59
Number of Markets with Declining Year over Year Quarterly Demand, Occupancy Source: PKF Hospitality Research Turning Point 60
Local Market Outlook Varies Considerably Number of Quarters Until RevPAR Change Turns Positive 2 Quarters 3 Quarters 4 Quarters 5 Quarters 6 Quarters 7 Quarters 8 Quarters Among our 50 market universe, only New Orleans is expected to achieve growth in RevPAR in 2009 Record low occupancies in 17 of our 50 market universe in 2009. Source: PKF Hospitality Research 61
The Economy Profit Outlook Takeaways Asset Values 62
63 Where are Cap Rates Going?
Forecast Spreads Above LRA But Below 2Q 2003 Peak Source: PKF Hospitality Research, Moody s Economy.com, Real Estate Research Corporation 64
Forecasts of Return Components Cap Rates Exploding Up 210 bps by 2010 10 Year Treasury Treasury Spread % NOI Cap Rate 2005 4.3% 4.0% 15.5% 8.3% 2006 4.3% 3.8% 13.3% 8.1% 2007 4.6% 3.0% 7.2% 7.6% 2008E 3.7% 4.1% -1.7% 7.8% 2009F 3.6% 5.2% -18.8% 8.8% 2010F 4.8% 4.9% 0.0% 9.7% Source: PKF Hospitality Research, RERC, Moody s Economy.com 65
Cumulative Value Decline Falls Short of 2001 2003 Experience Factors Influencing Value of Upper Priced Hotels Note: Cap Rate Influence = Change In Value Change In NOI (after reserve) Source: PKF Hospitality Research, Real Estate Research Corporation 66
U.S. Hotel Industry The Last Time Change In Select Unit Level Revenues And Profits* 2001-2003 Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization. Source: PKF Hospitality Research 67
U.S. Hotel Industry The Last Time Change In Select Unit Level Expenses 2001-2003 Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization. Source: PKF Hospitality Research 68
Change In Unit Level Marketing Department Expenditures* Note: * Does not include franchise related fees and assessments. Sample of properties that reported marketing payroll. Source: PKF Hospitality Research 69
Increased Payroll Spending Composition Of Unit Level Marketing Department Expenditures* Note: * Does not include franchise related fees and assessments. Sample of properties that reported marketing payroll. Source: PKF Hospitality Research 70
The Economy Profit Outlook Asset Values Takeaways 71
A Longer Journey This Time Number of Quarters from Beginning of Official NBER Recession Until Turning Point *Until supply falls below its LRA Source: PKF Hospitality Research 72
Nothing Looks Normal Supply Up Demand Down: Big RevPAR Declines in 09 2009 = the Low Point Going Forward = Below/Above Long Run Average Long Term Average 2004 2005 2006 2007 2008E 2009F 2010F Supply 1.9% 0.4% 0.1% 0.2% 1.3% 2.7% 2.9 1.0% Demand 1.9% 4.0% 2.8% 0.5% 1.0% 1.4% 2.8% 1.3% Occupancy 62.8% 61.3% 63.1% 63.3% 63.1% 60.5% 57.2% 57.4% ADR 3.5% 4.2% 5.5% 7.5% 6.1% 2.4% 4.6% 1.0% 73 RevPAR 3.5% 7.9% 8.5% 7.8% 5.7% 1.7% 9.8% 1.3% Source: PKF Hospitality Research Preliminary Fourth Quarter 2008 Hotel Horizons SM Report, Smith Travel Research
74 Hotels on the Watch List
Impact of Revenue Declines on NOI Depends on Where You Start Low and High Occupancy Hotels Hotels with Occupancy Greater than 70% Hotels with Occupancy Less than 70% Note: * After capital reserve expense and before rent, interest, income taxes, and amortization. Source: PKF Hospitality Research 75
Negative Impact on Debt Service Coverage Capability is Significant Resulting Debt Coverage Ratio Source: PKF Hospitality Research 76
Final Thoughts Nothing really new ahead, although all that is bad about this phase of the cycle is protracted in nature. NOI and asset value declines are big but not unprecedented owners and lenders will still experience significant stress. The Turning Point: consensus view is mid 2010. All expenses will continue to be scrutinized marketing no exception. Non labor related areas were cut the most last time around. 77
Questions? Jan D. Freitag Vice President, Global Development SMITH TRAVEL RESEARCH jan@smithtravelresearch.com www.smithtravelresearch.com R. Mark Woodworth President PKF International mark.woodworth@pkfc.com www.pkfc.com 78 hsmai.org
Upcoming HSMAI University Programs 3 rd Annual Hotel Sales Strategy Conference March 31 st, Swissotel Chicago Managing Business Results/Managing Revenue March 2 nd - March 6 th Location: Johnson & Wales University-Denver CHBA Certified in Hospitality Business Acumen Driving Revenue Through Successful Public Relations Tuesday, February 10 th Presenters are HSMAI Lifetime Achievement Award, the Winthrop W. Grice Award in Public Relations Evolving Travel Intentions Tuesday, February 17 th Peter Yesawich, Ph.D., President & CEO, Y Partnership Internet Marketing Series Thursday, February 26 th and Tuesday, March 3 rd Getting Your Message Across With An Integrated Marketing Strategy All webinars are 2:00 3:00 p.m. EST 79 hsmai.org
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